27 pad park deal, thoughts?

25 Replies

I am running the numbers for a deal I found near me, mostly as a thought experiment.  Below is an image of the deal with actual numbers.  Closing costs, rehab, and financing terms are a guestimate.

The seller owns 15/27 of the homes, which seems like a lot.  Pads rent for $275, homes for $475 to 500.  I do not know of the condition of the homes.

All utilities come from the city, so no on-site pumps or anything to worry about.

Let me know your thoughts or other questions to ask.  Thanks!

Kyle,

Based on the numbers this looks like a good deal with city water and city sewer. The main concern I would have is with the high percentage of POH's. You would want to convert these to TOH's as quick as possible. I also own a small park in the St. Louis area. Let me know if you want to discuss anything further. I am always looking to connect with local folks interested in mobile home parks.

Cory

@Kenton Coffman In the "rent roll" sheet, there are 5 open spaces, so room to grow the monthly revenue by $1250.  All other pads and homes are occupied.  I took a look through the park with google streets, and I saw 3-5 empty spaces.  Everything else was occupied.

@Kenton Coffman Do you deal in with MHPs in the St. Louis metro area?

@Cory Tasche I'm not local to the area but I am looking for a park in/near the St. Louis metro area and always welcome the opportunity to build relationships with other MHP investors.

@Cory Tasche I'm interested in learning more about the MHP sector to maybe one day get into those deals. Do you come to any local meetups? Feel free to PM me. 

@Kenton Coffman Awesome well there is a wealth or resources for the MHP industry. The first place I would start would be MHU. Frank and Dave's boot camp is a jam packed three days of learning everything about the mobile home park investing niche. if you have other questions feel free to PM at any time. How is the SFR market in the St. Louis metro area?

@Charles Kao Thanks for the feedback.  I talked to @Cory Tasche and he helped me through the numbers in depth, but its good to hear it reiterated.  The next step is to go check out the property.  I don't have time until after TG, so I hope it'll be available until then.  If not, no sweat.

A big thing for me is the market, how many people in the city. I like over 30k people min. That's actually what I look at first,  where is it located at, then I look at the parks numbers

@Mike G. Thanks I'll have to look MHU up and see all that it offers. SFR is still doing well in St. Louis, but there is a slow down in the luxury price point for us (500k plus) but we tend to move properties that are below that price point so we aren't slowing down at all. But we aren't seeing as many bidding wars. We just set up a relationship for a turn key exit, so that's a great exit strategy for us.

@Kenton Coffman that is great to hear. Sounds like a good strategy for you and your team. Does your team handle acquisition and rehab and then U retail or to invrstor to hold with a tenant in place? I’d be interested to learn more about what properties you have in the St. Louis metro area. As far as MHU frank and Dave have a weekly podcast that’s free on any podcast media, there is a ton of info to read on their site and YouTube them as well. Lots of footage from the boot camp to get a good feel if it’s for you and worth the investment or not but I can promise you as someone who has attended twice it most certainly is a great place to learn and network with likeminded investors of the mobile home park space. So take advantage of that !!
@Kenton Coffman That’s great. I am also interested in off market Multifamily deals in that market. But my focus is MHP as I educated myself immensely on this asset class - it’s my passion. If you need a great resource for learning about the mobile home park business take a look at mobile home university (Frank Rolfe and Dave Reynolds). 2 industry pros who have MHU. The boot camp is great to learn and the reading material is worth it’s weight in gold. If you have any questions feel free to ask me and I’ll help you in any way that I can. I’m always here to add value and help.

@Kyle Eckert that looks like a decent deal for a 27 space park.  Conservatively, if you just use the 22 spaces that are currently filled and only credit the lot rent, that is about a 9 cap deal (at a 40% expense ratio).  Assuming you can sell the POHs, fill up the 5 vacant spaces, and recoup your costs on those, you should end up with about a 12 cap deal when you are done, as long as you can bump the lot rent to $300. Plus you will have the income from the sale of the POHs.  A couple variables for you to consider on your purchase negotiations is the capex needed at the park level and the condition of the POHs if you end up having to repair them.  

Also, on a deal with that many POH and vacant spaces you don't want to buy the park and not be able to sell homes, so make sure to take the time to ferret out the demand for homes while you are in escrow.  Call all the surrounding parks and like a prospective tenant/buyer, and ask what the lot rents are, how the utilities are paid, and whether or not they have any vacant lots or homes for sale.  Ask them how many homes have sold in the last 6 months.  If they have some for sale, how much, what size, and will they carry financing? Best case for your demand is your competition is 100% full with a waiting list and they don't have any homes for sale, yet they are getting calls every day from people ready to buy.  Worst case for your demand is your competition has several vacant lots and a dozen homes for sale with zero down seller financing and haven't sold one all year. Once you have a pretty good idea of what the market is like for the competition, then run a test ad with a "pretend" home to sell and find out how many calls you will be getting once you buy the park, and what kind of buyers will be calling. 

All the best! 

   

@Kyle Eckert

as @Jack Martin mentioned you must not skip over this critical step. Never take the sellers word and or pro forma for face value. you must trust, but verify. Walk the park and knock on each unit and make sure there is someone actually in the ones that he says have tenants and furthermore than they are long term residents with leases in place. The last thing you want is to buy the park and come to find out the seller was selling and getting out when 6 leases were "non-renewing" that very same month. Then you will be up a creek with out a boat or a paddle. So check the leases as well on the occupied TOH and POHs

Commenting on an old thread.. really new to REI. Are all deals like this? Invest $150k cash only come make nearly $3k cash flow/mo? not trying to be rude or anything, just genuinely curious since this has a higher cap rate than normal.

Originally posted by @Kyle Eckert :

@Cayman Rigdon are there other legit investments where you can do better?  36k a year made on 150k investment is a 24% return on your money. That is great IMO, and an extra 3k a month would change my entire financial trajectory.

Yes it's a good return compared to a normal 401K or mutual fund but it's not multimillionaire money like we all like to think REI is. I just don't understand how people can become billionaires off of this when it would take 5 years to recoup the investment and do it again. I'm a bit of a noob so Is there something I'm missing?

Also, happy new year!

@Cayman Rigdon   Using this deal as a rough example: You acquire it for $450k, having a 100k downpayment.(20-25%) After acquisition, you fix a few issues, move in a few more mobile homes, and increase rent by $25/pad.

Now, since the valuation of properties like this are based on their income generation, now that your property is making significantly more money, its value has risen to $650k.  You can then cash out refinance most of your initial 100k and pull your money out that way, all the while having your tenants pay your note for you and having extra cash flowing as well.

You then snowball that cash into a new property, and it builds.  People who can successfully get their cash back out of a deal like this and keep it rolling along become the level of wealthy you are asking about.

Hope that helps!